I. Field of the Invention
The present invention generally relates to financial systems and to systems and methods for processing financial information. More particularly, the invention relates to systems and methods for issuing securities on tax-exempt bonds based on a single trust.
II. Background and Material Information
Many government entities have programs that issue bonds to finance multifamily housing. These multifamily bond programs serve the purpose of increasing the construction and rehabilitation of multifamily rental housing for families with limited incomes. The tax-exempt bonds (and corresponding promissory notes) provide below-market and market rate construction and permanent financing to the builders and developers of multifamily rental housing, which encourages the construction of affordable multifamily housing. These tax-exempt bonds also carry interest rates that are generally about 1.5 to 2.0 percentage points below taxable market rates.
In the past, in order to increase the investment opportunities in these tax-exempt bonds, certain financial institutions have provided “credit enhancement” for pools of bonds placed by their owner into grantor trusts. Such credit enhancement essentially involved the guarantee of scheduled principal and interest payments with respect to the bonds. Upon such enhancement, the trust would issue back to the bond owner trust receipts evidencing beneficial ownership in the enhanced bonds. The bond owner would then place such trust receipts in another, second, trust that would issue classes of senior and subordinate derivative securities backed, ultimately, by the enhanced bonds. The purchase price of the senior securities would be paid to the bond owner, which would use such proceeds to make additional investments in tax-exempt bonds, and the subordinate securities would be registered in the name of the bond owner, but pledged to the credit enhancer as security for the bond owner's obligation to reimburse the credit enhancer for payments made under its credit enhancement agreement. Under this structure, the owners of the senior derivative securities would have the right to tender or “put” their securities back to the trust for purchase upon seven day's notice. In order to provide money for the purchase of such securities, the trust would employ the services of a remarketing agent, which would attempt to remarket any securities so put. In order to guarantee the purchase of such securities in the event of a failed remarketing, the trust would also obtain a “liquidity facility” from the credit enhancer, which facility would essentially guarantee the availability of moneys to purchase the securities in the event that they could not be timely remarketed. The use of such complex trust arrangements would increase expenses, which results in lower returns to the bond owners and therefore decreased reinvestment in tax-exempt bonds.